Chaplin Ltd is a financing company and its primary interest in investing is return on investment.
It refrains from getting involved in the management of its investments. If an investee is not
managed properly, Chaplin Ltd sells its shares in that investee and selects a more profitable
investee to invest in.
On 1 July 2020, it held 35% of the issued share capital and 80% of the convertible debentures
of Charlie Ltd. Lately, when Charlie Ltd was having cash flow difficulties, it persuaded Chaplin
Ltd to convert some of the convertible debentures into equity to ease the effects of interest
payments on cash flow. As a result, Chaplin Ltds equity interest in Charlie Ltd increased to
55%. Chaplin Ltd still wanted to remain as a passive investor. For instance, Charlie Ltd did
not get involve in the recent appointments of board of directors. They were appointed by the
holders of the remaining 45% of shares.
Required:
Determine whether Chaplin Ltd is the parent of Charlie Ltd. Please provide reasoning in the
support of your conclusion.